Look Before You Leap: Key Considerations for Moving to a Digital-Only Model

The banking world is undergoing a transformative shift, as traditional in-branch interactions are gradually replaced with digital banking, mobile apps and omni-channel banking experiences. According to the Mobile Ecosystem Forum, 61 percent of people around the world use their mobile phone to carry out banking activity, with 48 percent using a dedicated banking app (1). In the United States, the number of digital banking users has steadily increased, rising 21 percent in the past five years alone (2).

Adopting an all-digital, branchless model puts banks in a prime position to deliver speed, convenience and enhanced customer experiences. This helps digital-only banks better appeal to next-gen customers who prize these attributes above all else, as well as pass significant cost savings onto them. According to PwC, the typical in-branch transaction costs $4, while desktop web and mobile transactions only cost $ .09 and $ .19 respectively (3).

However, being a digital-only bank is not without its challenges, and if you’re considering taking the plunge, you need to do so with your eyes wide open and know what you’re getting into: For instance:

Expect Zero Customer Forgiveness for Poor Performance: Today’s consumers have been conditioned by Google, Facebook and other industry leaders to expect exceedingly high performance (speed, reliability) for all the digital properties they interact with—online services, mobile apps and more. Such expectations are especially high in financial services, given the sensitive nature of individuals’ financial information and the fact that they expect access to it on a dime, anytime, and from anywhere.

Whenever a popular online banking service or app experiences a performance glitch, the social network backlash can be relentless. Consider the most recent case of Wells Fargo going down in early February (4), which spawned hundreds of disgruntled tweets like this one: “Can you guys fix your website? Today is payday and we need to pay our creditors. Ridiculous.” TD Bank had a similar experience in early March (5), prompting tweets like “What's up with your online app? Impossible to login and bills to pay. Help!”

In summary, consistently fast and reliable digital services are a must-have in almost all industries, but in financial services, they take on a whole new level of importance. And if you think customers will be more tolerant and understanding because you are smaller than the likes of a Wells Fargo or TD Bank, think again.

Personalized Services, Real-Time Information Delivery Are a Premium: Coinciding with the need to deliver excellent performance 24x7 is the need to master the art of real-time, personalized targeting and information delivery. Digital banking users tend to be technologically savvy and very aware that other options are just a click away. Therefore, any digital bank that fails to target individual customers on an emotional level and provide seamless access to fluctuating details of customers’ personal financial lives in real-time, is jeopardizing these relationships.

Digital-only banks must go beyond weak, automated messages that are mass-delivered. They must be experts at leveraging advances in predictive analytics, artificial intelligence and machine learning to offer relevant services in real-time that individual customers view as additive, versus intrusive. This requires digital banks to have deep insights into its customers’ financial lives—their income, spending and earning patterns and more.

As in other industries, banking customers are more willing to give out personal details if they know they can expect something positive in return. Research has shown almost two-thirds of households are willing to share highly personal information with their banks in exchange for perceived value (6), such as tailored offers and promotions. In this sense, early success in demonstrating this value is critical to digital banks continually building their data assets over time in order to enhance their personalization capabilities.

Additionally, digital customers expect access to details of their financial lives updated in real-time, beyond just bills paid and deposits made, to what is my current credit score? And what size personal loan am I not only eligible for, but won’t be a burden to take on? What is my current debt to income ratio? This requires finely tuned machine learning, leveraging massive amounts of available data.

The Human Touch Still Matters: While the rise in mobile devices and digital banking is giving customers a wide range of freedom, convenience and choice in how they conduct their banking, it seems the physical branch still has a place, particularly for certain types of transactions.

According to PwC’s 2018 Digital Banking Consumer Survey (7), a large majority of respondents noted convenient, in-person banking as a primary reason for choosing a bank. 65 percent noted it’s important to have a local branch, and 25 percent said they wouldn’t open an account with a bank that did not have at least one local branch.

These statistics point to an interesting trend—even in a ‘mobile first’ world, the ability to offer live person-to-person interactions whenever customers want or need it remains important, even for digital-only banks. To meet these demands, these banks need to go beyond basic call support and consider implementing advanced tools like real-time chat and video. While call centers and communication channels like Slack and email may be convenient, digital-only banks must address their limitations in supporting the type of two-way, face-to-face interactions that are irreplaceable when it comes to building authentic relationships.

Conclusion: The promise of going all-digital sounds great in theory, and some organizations have been able to adopt this model with tremendous success. However, it can be naïve to believe it is a panacea and without the proper approach, the challenges of a digital-only model can far outweigh the cost benefits of doing away with physical branches.

While there are many considerations, exceedingly high digital performance capabilities; personalized, real-time targeting and advanced face-to-face interaction tools are a must. Any bank contemplating a move to a digital-only model must clearly understand the stringent expectations that customers will impose, and be prepared to deliver.